Group B Assignment Week 13

P11-7 (LO1, 2) (Depreciation for Partial Periods—SL, Act.
, SYD, and DDB) On January 1,

2017, a machine was purchased for $90,000. The machine has an estimated residual value
of $6,000 and an estimated useful life of 5 years. The machine can operate for 100,000
hours before it needs to be replaced. The company closed its books on December 31 and
operates the machine as follows: 2017, 20,000 hours; 2018, 25,000 hours; 2019, 15,000
hours; 2020, 30,000 hours; and 2021, 10,000 hours.
Instructions
a. Compute the annual depreciation charges over the machine's life assuming a
December 31 year-end for each of the following depreciation methods.
1. Straight-line method.
2. Activity method.
3. Sum-of-the-years'-digits method.
4. Double-declining-balance method.
b. Assume a fiscal year-end of September 30. Compute the annual depreciation charges
over the asset's life applying each of the following methods.
1. Straight-line method.
2. Sum-of-the-years'-digits method.
3. Double-declining-balance method.
ANSWER
a. 1. Straight-line Method : $ 90,000 - $ 6,000
= $ 16,800 a year
5 years
a. 2. Activity Method : $ 90,000 - $ 6,000

= $ 0.84 per hour
100,000 hours
year 2017 20,000 x $ 0.84 = $ 16,800

year 2018 25,000 x $ 0.84 = $ 21,000
year 2019 15,000 x $ 0.85 = $ 12,600
year 2020 30,000 x $ 0.86 = $ 25,200
year 2021 10,000 x $ 0.87 = $ 8,400
a. 3. Sum-of-the-years' digits:
5+4+3+2+1 = 15 $ 90,000 - $ 6,000 = $ 84,000
year 2017 5/15 x $ 84,000 = $ 28,000
year 2018 4/15 x $ 84,000 = $ 22,400
year 2019 3/15 x $ 84,000 = $ 16,800
year 2020 2/15 x $ 84,000 = $ 11,200
year 2021 1/15 x $ 84,000 = $ 5,600
a. 4. Double Decllining Method

Each year is 20%, double rate to 40%
year 2017 40% x $90,000 = $ 36,000
year 2018 40% x ($90,000 - $36,000) = $ 21,600
year 2019 40% x ($90,000 - $57,600) = $ 12,960
year 2020 40% x ($90,000 - $70,650) = $ 7,776
year 2021 40% x ($90,000 - $78,336) = $ 4,666
b. 1. Straight-line Method:
year 2017 $ 16,800 x 9/12 = $ 12,600
year 2018 Full year = $ 16,800
year 2022 Full year x 3/12 = $ 4,200
b. 2. Sum of the years

year 2017 $ 28,000 x 9/12 $ 21,000
year 2018 $ 28,000 x 3/12 $ 7,000

$ 22,400 x 9/12 $ 16,800 $ 23,800
year 2019 $ 22,400 x 3/12 $ 5,600

$ 16,800 x 9/12 $ 12,600 $ 18,200
year 2020 $ 16,800 x 3/12 $ 4,200

$ 11,200 x 9/12 $ 8,400 $ 12,600
year 2021 $ 11,200 x 3/12 $ 2,800

$ 5,600 x 9/12 $ 4,200 $ 7,000
year 2022 $ 5,600 x 3/12 $ 1,400
b. 3. Double declining balance

Accumulated Book Value at
Depreciation
Year Cost Depreciation at beginning beginning of
Expense
of year year
2017 $ 90,000 - $ 90,000 $ 27,000
2018 $ 90,000 $ 27,000 $ 63,000 $ 25,200
2019 $ 90,000 $ 52,200 $ 37,800 $ 15,120
2020 $ 90,000 $ 67,320 $ 22,680 $ 9,072
2021 $ 90,000 $ 76,392 $ 13,608 $ 5,443
2022 $ 90,000 $ 81,835 $ 8,165 $ 3,266
2017 Depreciation = $90,000 x 40% x (9/12)
2018 Accumulated = from 2017 depreciation

Depreciation = ($90,000 - $ 27,000) x 40%
Book Value = $90,000 - $27,000
2019 Accumulated = $27,000 + $25,200

Depreciation = ($90,000 - $52,200) x 40%
Book Value = $90,000 - $52,200
2020 Accumulated = $27,000 + $25,200 + 15,120

Depreciation = ($90,000 - $67,320) x 40%
Book Value = $90,000 - $67,320
2021 Accumulated = $27,000 + $25,200 + $15,120 + $9,072

Depreciation = ($90,000 - $76,392) x 40%
Book Value = $90,000 - $76,392
2022 Accumulated = $27,000 + $25,200 + $15,120 + $9,072 + $5,443

Depreciation = ($90,000 - $81,835) x 40%
Book Value = $90,000 - $81,835
Group B
Anugrah Stephen Soen - 008202000043
Afifah Adi Yuliani - 008202000040
Doa Christoper Zepnath Sanaky – 008202000026
Elfina Aulia Rianda - 008202000008
Hana Lathifa Rasyidah – 008202000004
June Sherna – 008201800083
Thalia Maria dos Santos - 008201800102
P11-9 (LO3) (Impairment) Roland SE uses special strapping equipment in its packaging
business. The equipment was purchased in January 2018 for €10,000,000 and had an
estimated useful life of 8 years with no residual value. At December 31, 2019, new
technology was introduced that would accelerate the obsolescence of Roland's equipment.
Roland's controller estimates that the present value of expected future net cash flows on the
equipment will be €5,300,000 and that the fair value less costs to sell the equipment will be
€5,600,000. Roland intends to continue using the equipment, but it is estimated that the
remaining useful life is 4 years. Roland uses straight-line depreciation.
Instructions
a. Prepare the journal entry (if any) to record the impairment at December 31, 2019
(depreciation for 2019 has been recorded).
b. Prepare any journal entries for the equipment at December 31, 2020. The recoverable
amount of the equipment at December 31, 2020, is estimated to be €4,900,000.
c. Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the
equipment and that it has not been disposed of as of December 31, 2020.
ANSWER
a. Carrying value of asset €10,000,000 - €2,500,000 = € 7,500,000
(€10,000,000/8) x 2 = € 2,500,000
Impairment entry
Loss on impairment € 1,900,000
Accumulated Depreciation Equipment € 1,900,000
(€ 7,500,000 - € 5,600,000)
b. Depreciation Expense € 1,400,000

(€ 5,600,000 / 4)
Accumulated Depreciation Equipment € 700,000

Recovery ofImpairment loss € 700,000
€4,900,000 - (€5,600,000-€1,400,000)
c. No depreciation is recorded on impaired asset to be disposed.

Recovery of impairment losses are recorded as
31-Dec-20 Loss on Impairment € 1,900,000
31-Dec-21 Accumulated Depreciation Equipment € 700,000

Recovery of Loss from impairment € 700,000
(€ 5,600,000 - € 4,900,000)
P11-11 (LO4) (Mineral Resources) Phelps Oil Wildcatters plc has leased property on which
oil has been discovered. Wells on this property produced 36,000 barrels of oil during the
past year, which sold at an average sales price of £65 per barrel. Total oil resources of this
property are estimated to be 500,000 barrels. The lease provided for an outright payment of
£1,200,000 to the lessor (owner) before drilling could be commenced and an annual rental
of £62,000. A premium of 4% of the sales price of every barrel of oil removed is to be paid
annually to the lessor. In addition, Phelps (lessee) is to clean up all the waste and debris
from drilling and to bear the costs of reconditioning the land for farming when the wells are
abandoned. The estimated fair value, at the time of the lease, of this clean-up and
reconditioning is £50,000.
Instructions
a. From the provisions of the lease agreement, compute the cost per barrel for the past
year, exclusive of operating costs, to Phelps.
b. Compute the impact on Phelps' current year profit and loss of the operation of the
leased property.
c. Phelps is considering putting in a bid to lease an adjacent tract of land for development,
based on some preliminary geological surveys and exploratory drilling. Advise Phelps
on how to account for these exploration and evaluation costs.
ANSWER
a. Cost per barrel
£ 1,200,000 + £ 50,000 / 500,000 = £ 2.50 /barrel
b. Sales (36,000 x £65) £ 2,340,000.00

Expenses:
Depletion (36,000 x £2.50) £ 90,000
Premium Payment (£ 2,340,000 x 0.04) 93,600
Annual Rental 62,000 £ 245,600
Current year profit £ 2,094,400
c. Phelps has a choice on how to account for exploration and evaluation costs.
It can either write these cost as incurred or capitalize them pending evaluation.

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P11-7 (LO1, 2) (Depreciation for Partial Periods—SL, Act.

, SYD, and DDB) On January 1,

a. 2. Activity Method : $ 90,000 - $ 6,000

year 2017 20,000 x $ 0.84 = $ 16,800

a. 4. Double Decllining Method

b. 2. Sum of the years

year 2018 $ 28,000 x 3/12 $ 7,000

year 2019 $ 22,400 x 3/12 $ 5,600

year 2020 $ 16,800 x 3/12 $ 4,200

year 2021 $ 11,200 x 3/12 $ 2,800

year 2022 $ 5,600 x 3/12 $ 1,400

b. 3. Double declining balance

2017 Depreciation = $90,000 x 40% x (9/12)

2018 Accumulated = from 2017 depreciation

2019 Accumulated = $27,000 + $25,200

2020 Accumulated = $27,000 + $25,200 + 15,120

2021 Accumulated = $27,000 + $25,200 + $15,120 + $9,072

2022 Accumulated = $27,000 + $25,200 + $15,120 + $9,072 + $5,443

b. Depreciation Expense € 1,400,000

Accumulated Depreciation Equipment € 700,000

c. No depreciation is recorded on impaired asset to be disposed.

31-Dec-21 Accumulated Depreciation Equipment € 700,000

b. Sales (36,000 x £65) £ 2,340,000.00

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